Understanding Gross Margin

Use profit-driving strategies to improve business planning.

Profitability ultimately determines whether a pet store stays in business. To assess profitability at the department and store level, retailers must rely on gross margin to understand the difference between sales and profitable sales.

Gross margin analysis allows you to isolate problem areas and identify successful business strategies. This chapter introduces basic accounting and business math concepts to help pet retailers achieve their profitability goals.

After completing this chapter, managers should be able to:

  • Define important measures of profitability.
  • Understand gross margin components in a retail environment.
  • Identify formulas important to gross margin in a retail pet store.
  • Calculate net sales and cost of goods sold.
  • Define the four types of markup.
  • Calculate and analyze gross margin.
  • Describe key strategies for improving gross margin.

The Understanding Gross Margin chapter prepares managers to take an active role in planning profitability at the department and store level, with a thorough grounding in accounting concepts and business math. Topics include calculating different markups and gross margin, and analyzing and driving gross margin.

This chapter also includes a downloadable formula sheet.